chapter 10 managing information systems and technology investments
TRANSCRIPT
Chapter 10
Managing Information Systems and Technology Investments
Agenda
• Investment issues
• Evaluating IS/IT investment
• Setting priorities for applications
• Benefit management
• IT service charging
Investment Issues
• Justification & evaluation of IS/IT in terms of benefits
• Determining the priority in terms of benefits
• Realization of benefits
• Risk assessment
Evaluating IS/IT Investment
• Types of IS
• Types of benefits
• Relationship of IS & benefits
• IS & financial benefits
Types of IS
• Substitute for efficiency (do thing right)
• Complementary for effectiveness (do right thing)
• Innovative for competitive edge
Types of Benefits
• Cost/benefit analysis• Value linking: improvement in business
performance not cost saving• Value acceleration: time dependency of costs and
benefits in other dept. of system improvement• Value restructuring: productivity resulting from
organizational change & change of job roles• Innovation evaluation: new business practice
levered from IS/IT
Relationship of IS & Benefits - I
• High potential (innovative): cost/benefit, value linking, value acceleration, value restructuring, & innovation evaluation)
• Strategic (innovative & complementary): cost/benefit, value linking, value acceleration, & value restructuring
Relationship of IS & Benefits - II
• Key operational (complementary & substitute): cost/benefit, value linking, & value acceleration
• Support (substitute): cost/benefit, value linking, & value acceleration
IS & Financial Benefits - I
• High Potential: fund R&D exploring potential value & cost (risk money)
• Strategic: enable achievement of business objectives via explicit critical success factors (low)
IS & Financial Benefits - II
• Key operational: disadvantage/risk if it is not done (critical failure factors) & quantified performance improvement (medium)
• Support: net cost reduction through quantified saving (high)
Setting Priorities for Applications
• Assessment factors– Objectives (critical success factors)– Benefits (tangible & intangible)– Resources (financial, technology & human)– Risks (time, size, duration, technology, user
expectation & availability)
Benefit Management
• Objectives: Organizing and managing business activities to realize the potential benefit
• Process– Identify and structuring of benefits
– Planning benefits realization (business improvement by stakeholders)
– Executing the benefits realization plan
– Evaluating and reviewing results
– Potential for future benefits
Risk Management
• Types of IS failure
• Success factors of IS
• Success factors & IS
• Types of risk
Types of IS Failure
• Business environment
• Organizational
• User
• Data
• Technical
Success Factors of IS
• Time
• Quality or benefits
• Cost
Success Factors & Application
• Strategic: time (h), quality (m), cost (l)
• Key operational: time (m), quality (h), cost (m)
• Support: time (l), quality (m), cost (h)
Types of Risk
• People: management, user, technical, & communication
• Size: person-years• Project control: time, quality and cost• Complexity of system: business functions• Novelty: business change & technical
solution• Stability of requirement
IT Service Charging
• Types of service charging
• Service charging and IS
Types of IT Service Charging
• Service center
• Cost center
• Profit center
• Hybrid center
Service Center
• Pros– Stimulate experimentation
– Avoid conflict
– Promote use of service
• Cons– Uneconomic usage
– No accountability
– Excessive demand
– No priority setting
Cost Center
• Pros– Justify request
– Control on IS/IT
– User aware of costs
– Enable priority setting
• Cons– Deter use of IT
– Focus on cost not benefit
– Unsatisfactory in practice
Profit Center
• Pros– IS/IT controls its costs– IS/IT becomes proactive– Encourage user decision making
• Cons– User may go external– Create under-used IS/IT resources– IS/IT specialists in profitable work
Hybrid Center
• Pros– Allow different stages of IS/IT development– Accommodate innovation & new technology– Pricing can be used as a policy to achieve strategy
• Cons– Confusing to user– Complex accounting system– Incomplete control of IS/IT resource– Need continuous review of charging policy– Conflict in IS/IT department
Service Charging and IS
• Service center (no charge out & leading edge: high potential
• Cost center (average cost & scarce resource): support
• Cost center (standard cost & monopoly): key operational
• Profit center (market price & free market): support & high potential
• Hybrid center (flexible & centrally planned): strategic and potential
Points to Remember
• Investment issues
• Evaluating IS/IT investment
• Setting priorities for applications
• Benefit management
• IT service charging